On 27 October 2022, the Treasury Laws Amendment (More Competrition, Beter Prices) Bill 2022 passed both Houses of the Australian Parliament (Amending Legislation). The Amending Legislation gives rise to fundamental changes to Australia’s unfair contract terms regime (UCT Regime), via amendments to each the Australian Consumer Law (ACL), the Competition and Consumer Act 2010 (Cth) (CCA) and the Australian Securities and Investments Commission Act 2001 (Cth). Broadly speaking, the Amending Legislation:
(a) introduces penalties and other changes relating to the UCT Regime;
(b) increases the maximum penalties applicable to a broad range of breaches of both the CCA and the ACL, including the UCT Regime;
(c) substantially expands the application of the UCT Regime such that it applies to a wider range of contracts; and
(d) provides courts with greater flexibility in terms of remedies.
The changes to the UCT Regime are due to take effect on 9 November 2023. Given the nature of the changes, the risk of continuing to relying on standard form contracts after the changes come into effect will increase dramatically, particularly if such contracts have not been reviewed in sometime. We set out below some key changes which businesses should be aware of in the lead up to 9 November 2023.
EXPANDED SCOPE CATEGORY OF CONTRACTS TO WHICH THE UNFAIR CONTRACT TERMS REGIME APPLIES
One of the most far-reaching changes brought about by the Amending Legislation is the expanded coverage of the UCT Regime. In particular, expansions to the definitions of ‘standard form contract’ and ‘small business’ will mean far more contractual relationships will be subject to the operation of the UCT Regime than what was previously the case.
Previously, the UCT Regime had qualifying factors which largely restricted the scope of its protection. To be afforded protection, a party needed to either an individual consumer or a small business, where a small business was further confined to a business with 20 employees or less. In addition, in order to be covered by the UCT Regime, contracts could not be of a value which exceeded the legislated threshold. These qualifying factors have been markedly reduced. A small business, as a result of the Amending Legislation, now includes:
• a business that has fewer than 100 employees, or
• has a turnover for the last income year of less than $10,000,000.
In terms of eligible contracts:
• the contract value threshold referred to above has been removed entirely; and
• the Amending Legislation has clarified that a contract may still be a standard form contract even if the other party had a minor ability to negotiate terms or choose provisions.
Importantly, the amendments mean that the UCT Regime will apply not only to consumer contracts, but also to the supply of goods or services or the sale or lease of property, if a party to the contract is a business that employs fewer than 100 persons or has a turnover for its most recent income year of less than $10,000,000.
MORE FLEXIBLE REMEDIES NEW REMEDIES PROVIDED FOR UNDER AMENDING LEGISLATION
Under the current law, where a court determines that a term is unfair, it is automatically void. The court may also make some limited orders in relation to the relevant contract and associated arrangements, but this is usually only to preserve the functionality of the balance of the contract or commercial arrangement agreed to by the parties. As a result of the Amending Legislation, a court will now have far more flexibility in terms of what remedial action it may order. In particular, a court may now make orders for a whole contract, or a collateral arrangement, to be void and may also vary or refuse to enforce the provisions of a contract. The new remedies may be granted without a court considering whether these will redress actual loss or damage.
A court can also, following an application made to the ACCC, make orders prohibiting other contract terms that are the same as or are substantially the same as a term a court has declared in another mater to be an UCT. This is likely to build far more precedent moving forward as to what is and is not an unfair contract term. This in turn may also have the effect of increasing the culpability of businesses who continue to use certain contract terms, despite those terms having previously been found to be unfair.
HARSHER PENALTIES MORE SEVERE PENALTIES ARE NOW AVAILABLE TO COURTS PURSUANT TO THE AMENDING LEGISLATION
Under the new UCT Regime, the maximum penalties that may be ordered are as follows;
• for an individual – $2,500,000; and
• for a body corporate, the greater of:
o for an individual – $2,500,000; and
o $50,000,000;
o further, if the Court can determine the value of the benefit to the corporation obtained directly or indirectly from the act or omission, then 3 times the value of the benefit; and if the Court cannot determine the value of the benefit – 30% of the body corporate’s adjusted turnover during the breach turnover period.
WORD OF WARNING FROM THE ACCC ENFORCEMENT ACTION LIKELY
The ACCC has indicated in its recently released 2023-24 Compliance and Enforcement Priorities that it will be prioritising enforcement of the UCT Regime and it expects businesses to comply with their obligations, particularly given the advance notice of the changes and the significant penalties.
If they have not already done so, we urge businesses to conduct a review of any standard form contractual arrangements they may have in place and contact our office should you have any concerns.